How CD interest is calculated
A certificate of deposit pays a fixed rate for a fixed term. Interest is added to the balance at each compounding period and then earns interest itself. The calculator assumes that all interest stays in the CD until it matures.
With $10,000 at an example APY of 4% for 12 months, the CD is worth $10,400.00 at maturity, so it earns $400.00. The examples on this page use made-up rates to show the math, not rates any bank offers.
APY vs interest rate
Banks show two numbers. The interest rate is the yearly rate before compounding. The APY, annual percentage yield, is what the money actually grows by in a year once compounding is included. The Truth in Savings rules (Regulation DD) define the APY from the interest earned over the term and assume that principal and interest stay on deposit for the whole term.
Here n is the number of compounding periods a year. A rate of 4% gives these APYs:
| Compounding | APY at a 4% rate |
|---|---|
| Annually | 4.000% |
| Quarterly | 4.060% |
| Monthly | 4.074% |
| Daily | 4.081% |
Because the APY already includes compounding, compare offers by APY. Choose APY or Interest rate above the rate field, and set the compounding when you enter a rate.
Early withdrawal penalties
Most CDs charge a penalty if you take money out before the term ends. Federal law sets a minimum, at least seven days of simple interest when you withdraw within the first six days after the deposit, but no maximum, so the account agreement decides. Banks must tell you whether a penalty applies and how it is calculated. Many state it as a number of days or months of interest.
The calculator charges the penalty as months of simple interest on the deposit at the interest rate. With the example CD and a penalty of 3 months of interest, withdrawing after 6 months gives you $10,099.83: $198.04 earned minus a $98.21 penalty. From month 3, the interest earned covers the penalty; before that, you would get back less than you put in. The Consumer Financial Protection Bureau suggests comparing CDs by term, interest rate and the size of the early withdrawal penalty.
How a CD ladder works
A ladder splits your money into several CDs with staggered terms. With $20,000 in four CDs of 1, 2, 3 and 4 years, one $5,000 CD matures each year. You can then use that money or renew it into a new 4-year CD, so after a few years every rung is a long CD but one still matures every year. At an example APY of 4% on every rung, the four CDs earn $2,082 in total by the time each matures. Enter the rate your bank offers for each term in the ladder table.
Deposit insurance
CDs at an FDIC-insured bank are covered by FDIC deposit insurance up to $250,000 per depositor, per insured bank, for each account ownership category. The amount counts the principal plus any interest accrued. If your deposits at one bank will grow past that, you can spread them over several banks or ownership categories. The calculator shows a note when a CD's value at maturity passes $250,000. For savings without a fixed term, try the compound interest calculator or the savings goal calculator.
How to use the CD calculator
- 1Enter your deposit, the APY or the interest rate with its compounding, and the term in months.
- 2Read the value at maturity and the interest earned. Open Early withdrawal and enter the penalty from your account agreement to see what breaking the CD would cost.
- 3Compare up to 3 CD offers, or split an amount into a CD ladder with a rate for each rung. Copy the result or share a link.
Sources
- FDIC: Understanding deposit insurance ($250,000 per depositor, per insured bank, for each account ownership category; CDs covered)
- FDIC: Deposit insurance FAQs (principal plus accrued interest)
- CFPB: Regulation DD, Appendix A, annual percentage yield calculation
- CFPB: Regulation DD § 1030.4, account disclosures of early withdrawal penalties
- OCC HelpWithMyBank: Penalties for withdrawing money early from a CD
- CFPB: What is a certificate of deposit (CD)?
Frequently asked questions
How is CD interest calculated?
The balance grows by the APY once a year, with the interest left in the account: maturity value = deposit × (1 + APY)^(months ÷ 12). With $10,000 at an example APY of 4% for 12 months, you get $10,400.00 back, $400.00 of it interest. If your bank quotes an interest rate instead, the calculator turns it into the APY using the compounding frequency.
What is the difference between APY and interest rate?
The interest rate is what the bank pays per year before compounding. The APY, annual percentage yield, includes the effect of compounding, so it is the higher number whenever interest compounds more than once a year. Because every APY already counts compounding, it is the fair number for comparing CDs.
What happens if I withdraw money from a CD early?
You usually pay an early withdrawal penalty, often stated as a number of days or months of interest. Federal law sets a minimum, at least seven days of simple interest if you withdraw within the first six days after the deposit, but no maximum, so check your account agreement. Enter the penalty in months of interest and the month you would withdraw, and the calculator shows what you would take out.
Can an early withdrawal penalty cost me part of my deposit?
If you withdraw before you have earned as much interest as the penalty, the interest does not cover it. Whether the bank then takes the rest from your deposit depends on your account agreement. The calculator assumes it does, shows the shortfall and tells you from which month the interest covers the penalty.
Are CDs insured?
CDs at an FDIC-insured bank are deposits and covered by FDIC insurance up to $250,000 per depositor, per insured bank, for each account ownership category. The coverage counts the principal plus interest accrued.
What is a CD ladder?
You split your money across several CDs with different terms, for example 1, 2, 3 and 4 years. One CD matures every year, so part of the money becomes available regularly, and you can renew it into a new long CD or use it. The ladder section of the calculator splits an amount into rungs and shows when each one matures and what it earns at the rates you enter.